管理層發言
Greetings, and welcome to the HF Foods Group's Second Quarter 2026 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I would now like to turn the conference over to your moderator today, Jonathan DeDomenico of ICR. Please proceed.
Hello, everyone. Welcome to HF Foods Group Second Quarter 2026 Earnings Conference Call. Joining me on today's call are Xi Lin, the company's President and Chief Executive Officer, and Paul E. McGarry, the company's Chief Financial Officer. Before we begin, let me remind everyone that today's discussion contains forward-looking statements based on management's current beliefs and expectations about future events, which are subject to a number of known and unknown risks and uncertainties, including statements regarding our previously announced agreement to acquire Sea Ray Foods and the timing, terms, and anticipated benefits of that transaction. If you refer to HF Foods' earnings release, the Sea Ray acquisition press release, as well as the company's most recent SEC filings, you will see a discussion of factors that could cause the company's actual results to differ materially from those expressed or implied by these forward-looking statements. The company undertakes no obligation to update or revise these forward-looking statements in the future. In these remarks, the company will make several references to non-GAAP financial measures, including adjusted EBITDA and non-GAAP diluted earnings per share. We believe that these measures provide investors with a useful perspective on the underlying growth trends of the business, and the earnings release includes a full reconciliation of non-GAAP financial measures to the most comparable GAAP measures.
We will now turn the call over to Xi Lin.
Hello, everyone. Welcome to HF Foods' second quarter 2026 earnings call. I will provide a business update, and Paul will speak to our second quarter financial results. Then we will open up the line for Q&A. We continue to build momentum in the second quarter even as tariff pressure, softer foot traffic, and rising fuel costs continue to weigh on the industry. Net revenue increased 2.8% year over year to $323.8 million, our highest ever quarterly revenue. Gross profit was essentially flat at $55 million for the quarter. Adjusted EBITDA was $13.6 million, down 2% year over year, representing a 4.2% margin compared to 4.4% in the prior year quarter. These results are especially impressive on a year-over-year basis given that last year's second quarter benefited from low-cost inventory positions and better pricing, which lifted margins in the second quarter of 2025. We continue to make progress on our long-term transformation plan this quarter, including our sales, operations, digital infrastructure, and facilities upgrades. We remain confident these investments are building a stronger foundation for sustainable growth even as we continue to navigate some near-term pressure from rising fuel costs, which we are actively managing. The clearest proof point of our strategy came on July 17, when we entered into a definitive agreement to acquire Sea Ray Foods, a leading Canadian importer and distributor of ethnic and specialty frozen seafood based in Richmond, British Columbia. It is our first transaction outside the United States and extends our M&A playbook into a new geography. Sea Ray brings six proprietary brands, including Sea Ray Foods, High Best, Cindy's Best, SmartFish, Diamond Shrimp, and Go Label into our seafood category, which already makes up about 36% of our net revenue. Sea Ray has grown revenue at roughly 15% a year since 2019, with EBITDA margins in the mid-teens. At approximately 5x Sea Ray's 2025 adjusted EBITDA, we expect the transaction to be accretive to both margins and EPS from close, supporting the consolidated adjusted EBITDA margin target of 4.5% to 5% plus that we have laid out for the next three to five years. We expect to close in the third quarter subject to customary conditions and regulatory approval, and Sea Ray's existing management team, led by incoming CEO Derek Ng, will continue running the business day to day. Consideration is a mix of cash and HF Foods stock, and we will disclose the final split at closing. Once closed, Sea Ray gives us a platform to grow in Canada. Sea Ray's business carries a margin profile well above our current company and becomes a meaningful part of our growth story in the market for years to come. Beyond Sea Ray, M&A remains a core pillar of our growth strategy. HF Foods is the only scale foodservice provider in the Asian specialty market in the United States, and we believe we are the strategic acquirer of choice within our space. We are focused on expanding our geographic footprint in high-potential markets, capturing operational synergies, broadening our customer base, and enhancing our product and service capabilities. We remain disciplined but optimistic about additional M&A opportunities in 2026 and beyond and are actively evaluating opportunities from potential sellers who understand our unique position. We believe our proven ability to successfully navigate the tariff landscape positions us uniquely to identify and execute attractive tuck-in acquisitions that will benefit from our operational expertise and scale. I want to emphasize the significant runway ahead of us. The $50 billion addressable market we have talked about historically reflects the U.S. alone, and with Sea Ray now giving us a foothold in Canada, our total opportunity is even larger. At just over $1 billion in net revenue, we are the largest player in the Asian specialty space. No competitor, larger or smaller, is better positioned than HF Foods to capture this opportunity in the coming years. Now Paul, our CFO, will walk you through more details of our financial performance for the quarter.
Thanks, Xi. I will now review our results for the quarter ended June 30, 2026 versus the same period in 2025. Net revenue for the quarter increased 2.8% or $8.9 million to $323.8 million from $314.9 million in the prior year quarter. The increase was primarily due to volume growth and improved pricing in seafood, followed by volume growth in commodities, partially offset by price decreases in meat and poultry. Gross profit was $55 million for the quarter, essentially flat compared to $55.1 million in the prior year quarter. Gross profit margin decreased to 17% for the quarter compared to 17.5% in the prior year quarter. Margin was impacted by incremental tariffs that took effect beginning in the third quarter of 2025, partially offset by some IEEPA tariff refunds received during the quarter. Distribution, selling, and administrative expense, or DS&A, increased $1.2 million or 2.4% to $52.2 million for the quarter. The increase was driven primarily by higher auto and truck expense reflecting elevated incremental fuel costs of approximately $1.4 million year over year, together with higher insurance and professional service expense, partially offset by lower personnel expense as a result of our transformation initiatives. DS&A as a percentage of net revenue was 16.1% for the quarter compared to 16.2% in the prior year quarter. Adjusted EBITDA decreased 2% to $13.6 million for the quarter compared to $13.8 million in the prior year quarter. Adjusted EBITDA margin was 4.2% compared to 4.4% in the prior year quarter. Total interest expense was $2.9 million for the quarter compared to $2.8 million in the prior year quarter. The increase reflects a higher average daily line of credit balance of $65.7 million compared to $12.1 million previously, partially offset by a lower average term loan balance and modestly lower floating rates. Net income attributable to HF Foods was $2.6 million for the quarter compared to $1.2 million in the prior year quarter. The improvement was primarily driven by an employee retention credit of $1.8 million, which includes interest, an IEEPA tariff refund of approximately $1.1 million, and a $1.4 million favorable year-over-year change in the fair value of our interest rate swap contracts. These items were partially offset by a $1.3 million decrease in income from operations and a $700 thousand year-over-year change in net income attributable to noncontrolling interests. Adjusted net income attributable to HF Foods was $6.4 million for the quarter and essentially flat compared to the prior year quarter. Earnings per share improved to $0.05 compared to $0.02 in the prior year quarter. Adjusted earnings per share was $0.12 for the quarter and flat compared to the prior year quarter. Now on CapEx, we spent approximately $20.3 million for the first six months ended June 30, 2026. The spend is driven principally by the $12.4 million purchase of our previously leased Chicago distribution center, along with $2.8 million of solar investment, which is expected to lower operating costs; $2.1 million of capacity expansion; and $1.4 million of fleet upgrades. Recurring maintenance expenditures were approximately $1.7 million. On the solar investment, we will benefit from an investment tax credit refund that will reduce our overall investment by 40%. Turning to the balance sheet: after quarter end on July 29, we closed an amendment that refinanced and upsized our credit facility. Our bank group includes JPMorgan Chase as administrative agent and lender, together with Fifth Third and TD Bank, which joined the facility in connection with this transaction. We increased our asset-based revolving commitments from $125 million to $140 million and refinanced our existing term loans, which had an outstanding balance of approximately $95 million, into term loans totaling $125 million. The revolving facility now matures in July 2031 and the term loan in July 2036. The transaction gives us meaningful incremental liquidity to fund our growth initiatives for both the Sea Ray acquisition and our ongoing facilities investments. Because the refinancing closed after quarter end, it is not reflected in this quarter's financials. Full terms are available on the Form 8-K we filed on July 31, and I want to thank our banking partners for their commitment in helping us drive the growth of HF Foods. Now to the transaction we announced on July 17. On July 17, we signed a definitive agreement to acquire Sea Ray Foods. This is the first acquisition outside the United States in HF Foods' history and is the clearest evidence yet of what we mean when we say we are the acquirer of choice in this category. The transaction is expected to close in August 2026 and is the most consequential thing we have done this year. The aggregate base purchase price is CAD 47.9 million, or approximately $35 million, with the sellers also eligible for contingent earn-out payments tied to specific EBITDA targets over a two- to three-year period following the closing. Consideration is a mix of cash and HF Foods common stock, which can be reviewed in the Form 8-K we filed announcing the transaction. We expect to close no later than August 31 subject to customary closing conditions and receipt of any required regulatory approvals. Now the economics, which are what makes this acquisition compelling: the base purchase price represents approximately five times Sea Ray's baseline adjusted EBITDA of roughly CAD 9.6 million or approximately $7 million U.S. Sea Ray runs adjusted EBITDA margins in the mid-teens against our consolidated adjusted EBITDA margin of 4.2% this quarter. So this is a business that is margin-accretive to the platform from day one and moves us towards the 4.5% to 5% plus consolidated target we have laid out. We are acquiring a higher-margin business at a mid-single-digit multiple, and that is exactly the discipline we told you we would bring to M&A. Let me close by putting the quarter in a broader context. This is our sixth consecutive quarter of year-over-year net revenue growth. And at $323.8 million, it is the highest quarterly net revenue in the company's history. On a trailing 12-month basis, we are now at approximately $1.25 billion, and all of that growth has been driven by organic volume increase and better pricing. So we entered the second half with three things in place that we did not have a year ago. First, a refinanced and upsized credit facility with revolving commitments of $140 million, term loans termed out to 2036, and materially more liquidity to deploy. Second, a signed definitive agreement for our first acquisition outside the United States at an attractive multiple with a margin profile well above our own. And third, a transformation program that is now largely built rather than under construction, which lets us shift from implementation to optimization—purchasing discipline, route and warehouse efficiency, cross-selling opportunities, and tighter cost control as fuel and other input costs remain elevated. We will stay disciplined on capital deployment and selective on the tuck-in opportunities that strengthen the platform. The balance sheet capacity we just created is there to support that, and Sea Ray is the first demonstration of what we intend to do with it. With that, I will turn it back to Xi.
Thanks, Paul. Before we move to Q&A, I want to spend a moment on why Sea Ray is such a significant milestone for us. Sea Ray has spent 25 years building its business in Canada, and we are proud to have them join HF Foods. Just as Sea Ray gives us a platform to grow in Canada, Sea Ray has recently established its own operations in the U.S., including a planned direct import operation in Los Angeles, and we believe our distribution network, sourcing scale, and West Coast infrastructure can help accelerate that. Sea Ray also brings a customer base that includes retail, wholesale, and restaurants. We have talked for a long time about expanding our platform beyond the United States, and Sea Ray is the first step in that long-stated strategy. Now our focus turns to executing well, working closely with the Sea Ray team on a smooth transition, and beginning to act on the cross-selling and supply chain opportunities as the deal moves toward closing in the third quarter. Alongside that, we will keep advancing the facilities and system work already underway and we will stay disciplined as we evaluate further opportunities that strengthen the platform. Thank you for your continued support. We look forward to updating you on our progress next quarter. I will now turn it over to the operator for Q&A.
分析師問答
Thank you. We will now conduct a Q&A session. Once again, that is star-one at this time. One moment while we poll for the first question. The first question comes from Aaron Grey with Alliance Global Partners. Please proceed.
Hi, good evening. Thank you very much for the question and congrats on the quarter here. I guess first question for me, just in terms of the Sea Ray acquisition, obviously adding the geography with Canada, but would love to hear more in terms of some of the depth or scale specifically within the seafood category and what opportunities the acquisition will bring for you guys. Thank you.
Hi, Aaron. From a customer mix standpoint, we see Sea Ray as a great platform to open up new channels for us. Historically, in the U.S. market, HF's business has been focused on independent restaurants. For Sea Ray, independent restaurants in Vancouver and the western part of the Canadian market are a smaller part of their mix. They have a healthy mix of retail and wholesale channels that serve Asian specialty grocery stores. With the margin profile we are seeing, we view that as a significant opportunity for the future in addition to the margin uplift.
Okay. Great. Thanks. Appreciate that. Second question for me, on the gross margin profile, it came above our estimates even when we strip out some of the tariff refund benefit that you got. So just as we think about the gross margin going forward, particularly as we layer in Sea Ray, where do you see the gross margin profile evolution as you guys look to offset some of these tariff headwinds and otherwise? Thanks.
One of the things we have discussed in the last couple of earnings calls is that we are focused on expanding our gross profit dollars. In 2026 the focus has been trying to capture new market share through our expansion in the Southeast and with a higher seafood mix coming into the business. Pricing and fuel cost pressures were not fully expected in 2026, so we expect volume to continue to tick up to offset some of the margin concessions we may give to win new accounts. With Sea Ray, their gross profit margin is north of 20%, so over time—especially in Q4—we expect that to contribute a favorable mix into our consolidated gross margin.
Okay. Great. Thank you very much for the detail. I will go ahead and jump back in the queue.
The next question comes from Daniel Harriman with Sidoti and Company. Please proceed.
Congrats on a great quarter. Just a couple of quick ones for me, kind of following up on the last one there. Just curious if you can update us on some of the cross-selling initiatives across the Southeast and the Midwest and where you are in that ramp and how we should think about the pace from here. And then regarding operating income, just looking to see when we can expect maybe Charlotte and Atlanta to start showing up in some of the numbers. Thanks so much.
Hi, Daniel. Let's address the Southeast first. We have enjoyed additional capacity in the first half of the year, and we have seen a meaningful volume increase in seafood. One thing to note is that our additional freezer capacity likely will not be ready until later in the year or even into 2027. Charlotte is still going through inspection at the moment; renovation is 100% completed, and hopefully within the next week or two Charlotte can be operational. Charlotte is more of an efficiency play by allowing us to shorten distribution routes for our Great Wall Virginia business that is currently based out of Richmond, Virginia. We expect to see some DS&A improvement coming from Charlotte, likely in Q4. In the Midwest, we are doing some minor capacity improvements, so it is likely to be toward the end of 2026 and into 2027 before we see meaningful capacity expansion there.
That is really helpful. Thanks so much.
The next question comes from William Kirk with Roth Capital. Please proceed.
Hey. This is William Joseph Kirk on for Bill. Thanks for taking the questions. First for me, on traffic. You mentioned previously that takeout strength has offset dine-in. Has that trend held, and were there any notable changes in traffic related to the World Cup in any of your regions or any other drivers of incremental traffic on the quarter? Any color there would be helpful. Thank you.
We did not see anything specific tied to the World Cup. There is seasonality to our business: Q2 is generally one of our higher foot-traffic quarters, and as you get into Q3 with kids out of school and summer vacation, foot traffic typically slows down. We have seen a meaningful improvement in takeout historically in Q2, which has offset some of the foot traffic decline we're seeing in buffet and dine-in restaurants. Overall, nothing too different versus the prior year—just normal seasonality so far in 2026.
And I appreciate that. Second for me, on the EBITDA beat: you mentioned recently being more aggressive pricing-wise in some categories to take share, but margins were up sequentially and EBITDA came in higher. Just help us unpack that a little more and where specifically that came from? Thank you.
We have been actively pursuing growth, running promotional campaigns with our West Coast business and partnering with key vendors to expand brand awareness in the market. Specifically in the Southeast, we have made a heavy push on seafood, and in Q2 we saw meaningful volume gains on the seafood side, which drove gross profit dollar improvement that offset some pricing pressure from rising diesel costs and conquest pricing. I expect we will remain in this conquest mode for the rest of 2026 before margins normalize, likely in 2027 and beyond.
Great. That is it for me. Congrats again on the quarter. Thank you.
At this time, I would like to turn the floor back over to Xi Lin for closing comments.
Again, I want to thank everyone for your continued support of HF Foods. It is an exciting time for us. We continue to execute on our strategy. We look forward to closing the Sea Ray acquisition in the coming weeks. It will be a significant milestone for us. We will update you all on the progress of integration on our next earnings call. Thank you for your time.
This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.